Second Reading SpeechMs O'DWYER (Higgins-Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service)
That this bill be now read a second time.
This bill represents another important step in demonstrating the government's ongoing commitment to tackling multinational tax avoidance.
TheMultilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, commonly referred to as the multilateral instrument, is a key element of the OECD/G20 Base Erosion and Profit Shifting, otherwise knowns as the BEPS project, which identified 15 specific areas in which countries should take action to address multinational tax evasion. The multilateral instrument is the output of BEPS Action 15.
Under the government Australia has been a strong supporter of the BEPS project, and remains at the forefront of global efforts to ensure that multinationals' profits are taxed in the jurisdiction where economic value is added or created. Since coming to office, the government has implemented a comprehensive suite of integrity measures designed to prevent multinationals from shifting untaxed Australian profits offshore.
The multinational instrument is a multilateral treaty that will modify the majority of Australia's bilateral tax treaties to include new integrity rules that will help prevent those treaties from being exploited for tax avoidance purposes. More specifically, and from an Australian perspective, it will include rules designed to:
- ensure that income derived through fiscally transparent entities (such as partnerships and trusts) will only be eligible for treaty benefits, such as reduced taxation, in appropriate circumstances;
- prevent entities from changing their jurisdiction of residence for tax purposes in order to obtain treaty benefits;
- ensure that tax-treaty based relief from double taxation does not result in double non-taxation (that is, no tax paid in either jurisdiction);
- clarify that Australia's tax treaties are not intended to facilitate tax avoidance or evasion;
- provide Australia and its treaty partners with specific treaty based anti-avoidance rules;
- prevent entities from inappropriately increasing their shareholdings in Australian companies in order to obtain reduced taxation on dividends;
- prevent entities from avoiding capital gains tax by diluting their ownership interests in Australian land-rich entities shortly before disposing of those interests;
- clarify that Australia's tax treaties do not restrict its right to tax its own residents;
- prevent entities from fragmenting their business related activities or engaging in contract splitting to avoid having a permanent establishment (a taxable presence) in Australia or in a treaty partner.
The multilateral instrument will also improve the effectiveness of tax-treaty based dispute resolution mechanisms, including by allowing taxpayers to refer unresolved disputes to independent and binding arbitration (where Australia's treaty partners agree to adopt these optional arbitration rules). These features will provide greater certainty to taxpayers in relation to tax-treaty related disputes.
To date, 78 jurisdictions have signed the multilateral instrument. Australia signed it on 7 June 2017.
Pending its ratification by other jurisdictions, the multilateral instrument will modify the application of 31 of Australia's 44 bilateral tax treaties-that is, Australia's tax treaties with Argentina, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Fiji, Finland, France, Hungary, India, Indonesia, Ireland, Italy, Japan, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, Russia, Singapore, Slovakia, South Africa, Spain, Turkey and the United Kingdom.
This innovative multilateral approach will generate significant time and cost savings for Australia, by avoiding the need to bilaterally renegotiate each of these treaties individually to achieve similar outcomes, a process that could take decades.
Effective international cooperation is critical to maintaining the integrity of the international tax system and the multilateral instrument clearly demonstrates the results that such cooperation can produce.
The government is committed to continuing this cooperation and to working actively with the OECD and the G20, and bilaterally with Australia's tax treaty partners, to ensure that Australia's tax system remains fair and open, and keeps pace with international best practice.
Full details of the measure are contained in the explanatory memorandum.